Posts Tagged ‘utility rebates’

Jim Rogers from Duke Energy famously promotes efficiency as the “5th Fuel” in the world-wide portfolio of energy production. He echoes the consensus that renewable energy requires massive incentives to make it financially viable, while energy efficiency does not, and hence these opportunities should be more actively addressed.

The dirty little secret is that energy efficiency regularly requires incentives as well.

Though it may seem counterintuitive, many companies look for a five to ten year payback on their renewable energy investments, while they continue to apply “it better be under a three year payback or it won’t get done” for more traditional energy efficiency projects. Consequently, while EE projects have better returns, incentives are often still critical to getting these projects inside this payback hurdle.

Over the last twelve months, 70% of the EE projects Groom Energy implemented have been supported by some kind of financial incentive. Whether it’s a traditional motor or lighting upgrade with a utility rebate or a CHP system gaining Massachusetts’ Alternative Energy Credits, our engineers spend a lot of time trying to identify and secure the best incentives available for each customer project.

Determining how to sure our customers will get the incentives can be just as painful. Some authorities take a prescriptive approach, allocating a specific $ incentive figure for each measure deployed. Others take a custom approach, applying a $ figure for the total energy saved or produced. Some burden projects with small $ incentives with detailed energy modeling and pre and post project measurement and verification.

While the complexity provides a distinct competitive advantage for those who have the IQ and fortitude to understand and maximize the incentive benefits, customers perceive much of this as additional risk. And with risk comes hesitation.

Because of this, some groups are pushing for a national approach to energy efficiency and renewables, a National Efficiency Standard. The Energy Future Coalition, in partnership with American Council for an Energy Efficient Economy (ACEEE), Natural Resources Defense Council, the Environmental Law and Policy Center, Environment Northeast, and the Sierra Club, have proposed an EERS that sets a 15% electricity and 10% natural gas savings target by 2020. Other approaches would equally value the benefit of a megawatt saved or produced. This would be similar to a REC which establishes value based on the projected performance of a renewable asset, but on a national scope. Others, differentiate between production and efficiency, rewarding each with it’s own specific incentive.

What most of these folks do agree on is that reducing the complexity and risk of the puzzle of incentives would deliver more impact than most other energy or carbon reduction initiative in the que. The question remains, who will lead the effort to drive it? The Department of Energy? The White House?

In my former life as a early stage venture capitalist I learned a traditional VC bias against investing in start ups where government subsidies were necessary to make the technology’s economic case work. Year’s later I’m scratching my head at how the VC market has thrown out this bias in cleantech investing, an example being their heavy investment in solar PV technology.

While one can’t dispute that the worldwide PV markets are getting larger, anyone who has run PVwatt knows that without significant subsidies the technology doesn’t work as an alternative to kWh from the grid. An incremental improvement in PV’s performance will not change this situation. In the US, the math says that without a relatively high kWh cost AND a belief that kWh cost will inflate at 5-10%/year AND a large State renewable grant AND a 30% Federal grant or ITC, PV just doesn’t pass a reasonable economic test.

Which means that when Federal or State policy makers contemplate any potential change to renewable grant levels, the market gets really bumpy. We experienced this at the end of 2008 when the Federal ITC extension was in question. We’re currently experiencing this again in Massachusetts where the PV incentive program is temporarily suspended as the State transitions to a REC model “sometime in 2010.“ Kind of makes it difficult on a small local solar installer while it’s customer prospects wait for new incentives….here, an absense of policy has slowed one of the fastest developing PV markets in the US.

Like State renewable grants, utility energy efficiency rebates are watched closely for the signaling effect of change. Earlier this year we saw one utility’s energy efficiency program introduce “accelerated” rebates, only to abruptly cancel the program four months later due to over-subscription. Customers who didn’t participate are left to wonder whether they should wait on the sidelines until another accelerated program comes back to the market. Here, the utility’s haphazard policy has stunted market growth.

As the US moves towards more incentives for both broader renewable and energy efficiency upgrades, Federal, State and utility policy makers need to better coordinate the management, introduction and changes to these programs. They should recognize the dual edged sword they hold – whenever they change the incentives, or worse, suggest they might change the incentives, the market adoption rate is slowed.

Just as the stock market rewards companies which produce predictable financial results with higher multiple stock prices, policy makers need to signal the market as they grow incentive programs, making them predictable and long term. The incentive programs need to reward action today, including grandfather clauses for those who would otherwise sit on the sidelines while new policies are being developed. Without this approach, human nature “wait and see” will rule the day.